Economists optimistic despite dip in US services sector activity

Services sector activity in the States cooled a tad more quickly than anticipated last month, amid falling levels production, new orders and hiring.

The Institute for Supply Management's services sector Purchasing managers' Index dipped by 1.8 points from a 56.9 point reading for May to 55.1 in June, missing economists' forecasts for a print of 56.0.

A key gauge of new orders fell by 2.8 points to 55.8, while a sub-index tracking levels of production slipped by 3.0 points to 58.2 while another tracking hiring retreated by 3.1 points to 55.0.

Order backlogs however increased, with the corresponding sub-index improving by 3.5 points to 56.0.

Export orders on the other hand were steady with the sub-index that measures them steady at 55.0.

There were multiple references from survey participants and across sectors to the impact that tariffs were having, with purchasing managers in Retail saying that the impact on costs from the tariffs on Chinese imports were the major factor impacting on their business.

In Construction meanwhile, tariffs were said to be pushing the cost of finished materials higher, while new residential sales were off from their typical pace by between 10-15%.

Commenting on the latest ISM survey data, Ian Shepherdson, chief economist at Pantheon Macroeconomics, said the headline ISM non non-manufacturing PMI was simply tracking the recent slowdown in the year-on-year rate of growth in core retail sales, which he said was simply the result of the year earlier boost to sales from tax cuts.

But the year-on-year rate of core sales was unlikely to slow further over coming months, Shepherdson said, adding that the 55.0 point reading on the sub-index for employment was consistent with non-farm payrolls growth of roughly 180,000 in two or three months' time.